How L.A.’s Parcel Tax Will Impact CRE Properties
Measure EE will impose a $0.16 tax per square foot on commercial properties to raise funds for LAUSD.
Los Angeles is seeing yet another real estate-focused ballot measure. On June 4, residents will vote on Measure EE, a $0.16 tax per square foot on commercial properties to raise $500 billion over the next 12 years to support the Los Angeles Unified School District. The measure was drafted in response to recent teacher strikes, according to CoStar’s Randyl Drummer, and LAUSD says that it will use the funds to attract and pay qualified teachers.
Measure EE proposes to include not only residential properties but also commercial properties such as multi-unit apartments, retail spaces, and offices. This has struck a chord with commercial property owners and businesses,” Erica Joy Maniquis, a broker at Commercial Brokers International, tells GlobeSt.com.
Some reports estimate that the tax could cost commercial properties owners, particularly of landmark properties, hundreds of thousands of dollars annually. “Some owners of retail and office spaces can and will generally pass through these costs to their tenants by increasing the NNN rate,” says Maniquis. “This would affect the bottom line of tenants instead of owners and could result in the suffering of small-business retail companies and restaurants. Lest they decide to move their businesses outside of the city of Los Angeles.”
The tax could be most damaging for multifamily owners. Due to rent control restrictions in much of Los Angeles, multifamily owners will no be able to pass the increased tax onto tenants. “With regards to affordable housing, rent-controlled buildings on built prior to 1978 in Los Angeles will likely not affect tenants,” explains Maniquis. “However, this could cost hundreds of thousands of dollars for property owners of larger apartment buildings, as they will not be able to pass the costs through to their tenants. This may impact other services, which the landlord may offer a tenant.”
The support has been mixed. While Mayor Eric Garcetti has lauded the measure as a way to provide quality education to Los Angeles children, other organizations have criticized the fact that the proceeds will go to the General Fund and the measure does not provide oversight. “The L.A. Chamber is among the likes of the Building Owners and Managers Association, the Daily News, and the Los Angeles County Business Federation who is strongly campaigning against the measure demanding for reforms instead,” says Maniquis.